Stereotaxis, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Quarterly report for the three months ended March 31, 2012, filed May 10, 2012. Stereotaxis designs and markets the Epoch Solution, including Niobe robotic magnetic navigation, Odyssey information management, Vdrive robotic navigation, disposables, service contracts and accessories.
The company introduced the Niobe ES system in 2011 and was transitioning customers from Niobe II. As of March 31, 2012, 25 Niobe II-to-Niobe ES upgrades had been installed.
Financial Performance and Position
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Total revenue | $12.3 million | $10.2 million | +20% |
| Systems revenue | $5.2 million | $4.3 million | +21% |
| Disposables, service and accessories revenue | $7.1 million | $5.9 million | +20% |
| Gross margin | 69% | 71% | Down 2 points |
| Operating loss | $4.2 million | $8.8 million | Improved $4.6 million |
| Net loss | $5.8 million | $9.5 million | Improved $3.7 million |
| Net loss per share | $0.11 | $0.17 | Improved |
| Cash used in operating activities | $4.2 million | $10.0 million | Improved $5.8 million |
Systems gross margin increased to 55% from 49%, reflecting a higher Niobe product mix. Disposables, service and accessories gross margin declined to 80% from 86%, primarily because Niobe ES upgrades were provided through premium service packages.
Research and development expense declined 17% to $2.8 million, sales and marketing expense declined 28% to $6.0 million, and general and administrative expense declined 9% to $3.9 million. Interest expense increased to $1.5 million from $0.8 million due to higher debt balances and higher borrowing rates.
Cash and cash equivalents were $10.5 million at March 31, 2012, compared with $14.0 million at December 31, 2011. Working capital was negative approximately $15.4 million, compared with negative $6.6 million at year-end. Total debt was $39.5 million, including $26.7 million classified as current. Stockholders’ deficit was $23.4 million.
Material Changes Versus the Prior Comparable Period
- Revenue increased primarily from two Niobe system sales, $1.4 million of Niobe ES upgrades, increased Odyssey and Odyssey Cinema revenue, a larger installed base and favorable pricing.
- Operating losses narrowed substantially because of revenue growth and the company’s expense-reduction program, including headcount reductions and discretionary spending cuts.
- Gross margin declined despite improved systems margin because of lower margins on disposables, service and accessories.
- Operating cash burn improved, but the company continued to consume cash and reported a significant working-capital deficit.
- Cash declined by $3.5 million during the quarter. Financing cash flow was only $0.8 million, compared with $5.5 million in the prior-year quarter.
Guidance, Outlook, Risks and Unusual Items
Management expected negative operating cash flow throughout 2012 and expected sales and marketing, research and development, and general and administrative expenses to decline. The company expected losses to continue through at least December 31, 2012 and stated that additional capital or financing strategies might be required.
Liquidity was a substantial risk. The revolving credit facility matured April 30, 2012, was temporarily extended to May 15, 2012, and was subject to covenant waivers and borrowing-capacity reductions. At March 31, 2012, approximately $17.7 million was drawn and only about $0.1 million of additional capacity remained. The debt was secured by substantially all company assets, and covenant breaches could permit the lender to call outstanding debt.
On May 7, 2012, subsequent to the reporting date, the company announced financing intended to raise approximately $18.5 million: $10 million through common stock and warrants and $8.5 million through unsecured subordinated convertible debentures and related warrants. Net proceeds were intended partly to repay $7 million of the revolving-credit guarantee. The credit facility was amended to extend maturity to March 31, 2013 and reduce availability from $20 million to $13 million. The transaction involved substantial potential equity dilution.
The company’s Cowen debt totaled $14.8 million at March 31, 2012, carried a 16% annual interest rate, and was to be repaid from Biosense Webster royalties. A $188,000 unfavorable warrant fair-value adjustment was recorded in other expense. The company also faced a securities class action and a shareholder derivative action; management believed the claims were without merit, but outcomes and potential losses could not be estimated.
Foreign-currency revenue represented approximately 24% of total revenue. Management estimated that a 10% strengthening of the U.S. dollar would have reduced quarterly revenue by approximately $0.3 million. The company did not hedge foreign-currency exposure.
Important Facts for Investors to Verify
- Closing and terms of the approximately $18.5 million May 2012 financing, including proceeds, debt repayment and potential dilution from warrants and convertible debentures.
- Whether the amended revolving credit facility became effective and whether the company remained compliant with liquidity and other debt covenants.
- Cash burn, debt maturities and liquidity available after the financing and credit-facility amendments.
- Adoption and commercial traction of Niobe ES upgrades, including recurring disposables and service revenue.
- Progress toward operating-expense reductions and the path toward positive operating cash flow.
- Developments and potential exposure from the securities class action and shareholder derivative litigation.
- Regulatory status of the V-Loop circular catheter manipulator, which remained under FDA review.